India’s GST Council on Thursday recommended process reforms across refunds, registration, returns and enforcement that could affect how carmakers, component suppliers, dealers and fleet operators manage cash and compliance. The 57th meeting left vehicle rates unchanged, a year after the council cut GST on small cars, trucks and motorcycles up to 350 cc.
Ajay Agarwal, Group CFO and President – Finance & Strategy, Spark Minda Group, said the meeting marked a shift beyond rate changes towards a GST system that is “simpler, more predictable and business friendly.” For the automotive and auto component industry, he said, more efficient compliance, refunds and input tax credit processes could improve working capital visibility and reduce friction across supply chains.
The council recommended automatic refunds of excess cash ledger balances. For zero-rated supplies, including exports, and inverted duty cases, where tax paid on inputs exceeds tax on output, it recommended provisional refunds of 90% of a claim on a risk basis and without officer intervention. A second phase would allow automatic sanction of the full amount for zero-rated claims.
Input tax credit on input services in inverted duty cases would become refundable for credit availed from November 1, 2026. Credit on capital goods would qualify in both zero-rated and inverted duty cases for credit availed from April 1, 2027, with refunds spread over 60 months.
The council referred proposed changes to Section 16(2)(c) of the CGST Act to an officers’ committee, which has three months to report. The provision concerns cases where a buyer’s credit is blocked or reversed because a supplier allegedly failed to deposit tax, even though the buyer holds an invoice and has paid the tax. The Centre proposed limiting the impact to the buyer’s immediate supplier, but some states sought further examination. Agarwal said the review of safeguards for genuine taxpayers facing supplier-default ITC issues was encouraging.
On enforcement, the council recommended removing GST officers’ arrest powers by omitting Section 69 of the CGST Act, raising the prosecution threshold from ₹1 crore to ₹5 crore and reducing the maximum general penalty from ₹25,000 to ₹10,000. It also proposed barring show-cause notices for tax amounts below ₹10,000. Agarwal said the changes could make compliance more proportionate for businesses.
The council also recommended limits on when officers can stop goods vehicles, including those carrying vehicles and components between states. Interception would be permitted only when based on specific intelligence, with authorisation from an officer of at least the rank of joint commissioner, and in a state where the supplier or recipient is located or registered. Transit states would not be able to intercept vehicles. An exception would apply where there is no e-way bill or the vehicle carries no document showing the origin or destination of the goods, allowing officers to inspect, detain or seize them regardless of jurisdiction.
At a media briefing, Finance Minister Nirmala Sitharaman said the proposal was intended to prevent random stops by GST officers.
Separately, operators providing passenger transport or motor vehicle rental services using electric vehicles could opt to pay GST at 5% with restricted input tax credit, where the fare includes battery-charging costs.
For dealers and lessors, the council recommended clarifying that used-vehicle sellers under the GST margin scheme can claim credit on inputs and services such as spares, repairs, technology, rent and marketing. The restriction applies only to tax paid on the used vehicles they buy. It also recommended circulars on input tax credit for demonstration vehicles in certain situations, and clarification of the tax treatment of registration charges, road tax, insurance and FASTag fees recovered by lessors from lessees. The council proposed aligning the GST rate on retreaded tractor tyres with the rate on new ones.
The finance ministry said the recommendations would take legal effect only after the relevant circulars, notifications or law amendments were issued. Sitharaman said the council would take up rate changes once a year.